The equities markets have slipped below long-term trends and the widely observed Dow Theory, the oldest stock market signal, has signaled a “sell.” Nevertheless, investors can still hedge positions with inverse or short exchange traded fund strategies.
The SPDR S&P 500 ETF (NYSEArca: SPY) is trading 2.8% below its 200-day simple moving average while the PowerShares QQQ (NasdaqGM: QQQ) was 1.8% below its 200-day and SPDR Dow Jones Industrial Average ETF (NYSEArca: DIA) was 5.7% below its 200-day.
Looking at the Dow Theory, the equities markets could be in trouble ahead. Specifically, both the Dow Jones Industrial Average and Dow Jones Transportation Average have undergone a significant correction from their joint new highs; following the correction, one of the indices failed to rise above their pre-correction highs; and both averages dipped below their respective correction lows, with the Dow Transport broke under its previous low of 17,164.95, reports Mark Hulbert for MarketWatch.
Consequently, investors who are seeking a hedge against further weakness in the Dow Jones Industrial Average can utilize inverse ETFs to bolster their long equities positions. For instance, the ProShares Short Dow30 ETF (NYSEArca: DOG) tries to reflect the -100% daily performance of the Dow Jones Industrial Average. For the more aggressive traders, the ProShares UltraShort Dow 30 ETF (NYSEArca: DXD) takes the -200% of the Dow Jones and the ProShares UltraPro Short Dow30 (NYSEArca: SDOW) reflects the -300% of the Dow. [Do You Know How Your Leveraged ETFs Work?]
Around 330 S&P 500 stocks are in correction mode or worse Friday, with energy, materials and industrials among the worst areas of the market, CNBC reports.